Petroleum Licensing and Contracting

1. Encouraging exploration and production

Many countries wishing to attract investment into the extractives sector have decided in favour of a pro-active exploration policy and strategy, supplemented by a plan of action for Exploration and Production licensing, instead of waiting for applications to be made by companies.

Deciding on such a plan of action can be an important step, as illustrated for example by the positive experience in the US Outer Continental Shelf (OCS), in the provinces of Canada, in the federal OCS of Australia, in Brazil, in Norway or the UK. As many countries are trying to attract investment, adopting a fit-for-purpose exploration and licensing plan, and implementing it in a consistent manner will maximise the chance of a country being successful in attracting investors.

More awards of Subsoil User Rights (SUR) tend to take place under well-prepared and planned Competitive Licensing Rounds. The open-door policy is generally restricted to selected acreage previously opened and not yet licensed.

Policy in practice: steps to develop an action plan for licensing new blocks

The following steps should be considered in formulating an action plan for licensing new blocks:

1. Delineation of the areas of interest to be opened for exploration, and establishing priorities for the allocation of exploration areas (or “blocks”) for future rounds. Rounds may take place periodically at dates to be decided upon by the ministry, for example on an annual basis or, as in most countries, every two or three years. The optimal schedule will depend on the country’s exploration policy and the size and number of available exploration opportunities.

2. Acquisition of geological and geophysical data prior to each round, so that the Ministry or the Contracting Authority can provide this data to interested companies. Such data packages are sometimes sold to companies. The price will depend mainly on the exploration policy and the geological potential of the area.

3. Undertaking a geological survey regarding the areas to be opened, to assess their geological potential, help in the delineation of exploration blocks to be offered in later rounds, and support international promotion activity.

4. Selection of the blocks to be opened for the round and definition of the size of each block. To support this process, some countries ask interested companies to nominate the blocks that interest them most. Nominations are made in confidence and do not commit either party to following their suggestions when making applications (this process is called “block nomination” in Norway).

5. Determination of the specific terms of reference for the Round, including the applicable fiscal and contractual terms and conditions, as well as the detailed rules and instructions for the submission of applications and for the evaluation, ranking and selection of the winning bidder.